Accelerating inflation to 4.4% in the past year strengthens economists' estimates that the Bank of Israel will raise interest rates by a sharp half a percent next month.
This, after even a week and a half ago, the governor raised the interest rate in the economy by half a percent to a level of 1.25% - its highest level in nine years.
According to the forecast of the Bank of Israel's Research Division, the monetary interest rate is expected to stand at 2.75% on average in the second quarter of 2023. However, the interest rate market is already pricing a higher rise in the interest rate to 3% a year ahead.
The shekel is strengthening today against the dollar against the background of rising estimates that the shekel interest rate will rise sharply and trade around 3.46 against the dollar.
Inflation is expected, especially in rental prices, Photo: Yehoshua Yosef
Inflation appears to be more "horizontal", both in products and services, especially in rental prices. The annual inflation rate rose to 4.4% from 4.1% a month ago, and moves away from the inflation target. The Bank of Israel is expected to raise the interest rate by 0.5% on August 22 "Probably also on October 3. The Bank of Israel is adopting the approach of a number of central banks in the world - the US Federal Reserve and the Central Bank of Canada, which are raising interest rates sharply at the beginning of the monetary tightening cycle," says Jonathan Katz, macro leader at Capital Markets.
Recall that although inflation in Israel has moved very far from the Bank of Israel's target of 1-3%, the situation in many countries around the world is much worse.
Thus, according to data released yesterday, US inflation jumped 9.1% compared to last June - a record since 1981, while analysts forecast a more moderate rise - of 8.8%. Similar to Israel, the jump in US inflation is due to three main reasons - rising fuel prices, Housing prices and food prices.
"In Israel we have not yet reached the peak of inflation, when according to the Bank of Israel the peak is expected to reach only towards the end of the year. When we take into account the local inflation environment together with inflationary risks from the world and very aggressive actions by other central banks, "We are accelerating the interest rate hike process over the next few months. We estimate that the Bank of Israel will raise the interest rate by half a percent in the next decision," says Guy Beit-Or, the chief economist at Psagot Investment House.
"The inflation environment in Israel continues to expand as the housing section begins to show signs of awakening and looking ahead recent publications signal that food prices are expected to continue to accelerate. In addition, rising electricity and water prices are expected to give another boost to the inflation environment over the coming year. In our opinion, the exchange rate will continue to exert inflationary pressure in the coming months as well. "
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